Tax Preparer Audit Liability Agreement

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					                           Scott Kauffman’s...

                       IRS Tax Advocate                                 A Legal Newsletter
                                    “Read About Taxpayers with IRS Problems & Learn                              Volume IV, Issue 16
                                            Helpful Tips on How To End Them.”                                      Friday, 9:47 AM

      Learn How to Avoid
                                                                              JUSTICE DEPARTMENT NAILS

$$                  IRS
                                                                                ORANGE TAX PREPARER
                                                                  The Department of Justice announced that a former tax preparer at
        problems and solve                                        Western Tax Services in Anaheim has been barred from preparing
          them if you find                                        income tax returns for seven years. Joe Shields agreed to a consent
                                                                  decree, but without an admission of wrongdoing. Shields is one of
         yourself with one!                                       five local men sued in March by the Justice Department for
                                                                  allegedly inflating charitable contributions and business and home
Inside This Issue...                                              office expenses on over 18,000 federal income tax returns prepared
                                                                  since the late 1990s, costing the government in excess of $30 mil-
Justice Department Nails                                          lion in unpaid taxes. Western Tax Services is a high-volume tax-
Orange Tax 1
IRSProsecutions of                                                preparation service whose clients are primarily middle-income
Accountants 1          wage earners. Clients were referred by friends or relatives who
Two New Tax Scams! 1           were pleased with the refunds that averaged around $2,500.
Another reason not to Answer the Phone at                         Western charged its clients between $300 and $3,000 per return.
the Dinner 2      Western remains in business, but continues to be under investiga-
Tax Scams Targeting
Medical 2
                                                                  tion by the Justice Department. A class action lawsuit has also been
Compromising with IRS can take                                    filed in behalf of the victims.
Extraordinary 2           _____________________________________________________
IRS Fires 71 2
Bunny 2                   IRS PROSECUTIONS OF
Do Tax Amnesties Work? 3
IRS Mislaid 2300 3                                ACCOUNTANTS DOUBLES!
IRS Permitted to Terminate
Offer in 3          The IRS is stepping up prosecution of accountants and other return
IRS Vows to Crackdown                                             preparers as it combats the growing problem of fraudulent refunds.
on Tax 3
IRS Warns of Identity and
                                                                  In the last calendar quarter of 2002, the IRS referred 79 cases to the
Financial Theft 3          Justice Department for criminal prosecutions, a significant increase
A Cheating 4          over the same period last year. The IRS is hoping that its aggressive
Questionable Tax Deductions                                       stance will give preparers pause about inflating expenses or claim-
Exceed $16 4      ing bogus credits and deductions for clients. For all of 2002, crimi-
                                                                  nal investigations of preparers rose to 254 from 116 in 2001. The
                                                                  IRS referred 89 cases to the Justice Department, up from 73 in 2001.

                                                                                   TWO NEW TAX SCAMS!
                                                                  The IRS has issued a warning detailing two new tax scams. One
                                                                  scheme targets the families of those serving in the military and the
                                                                  other at email users. In both schemes, the perpetrators purport to be
                                                                  representatives of the IRS and represents to a family member that
                                                                  he is entitled to a $4,000 refund because his relative is in the armed
                                                                  forces and then requests a credit card number to cover a $42 fee for
                                             postage. The scammer provides an actual IRS toll-free number as
 IRS FIRES 71 EMPLOYEES                      the call back number in order to make the call appear legitimate.
                                             The scammer of course then makes numerous unauthorized pur-
The General Accounting Office                chases with the victim’s credit card. In another scheme, the victims
reported that between July 1998 and          receive an e-mail that appears to be from the IRS. The e-mail con-
September 2002 the IRS fired 71              tains a link to a non-IRS Internet web page that asks for personal
employees for misconduct. The IRS            and financial information. Such information could be used to steal
investigated 3,512 allegations and           the respondent’s identity and obtain access to sensitive financial
substantiated 419 as violations.             data or accounts.
Among the violations were failures to        _____________________________________________________
file tax returns on time, failures to
state tax liability accurately, threats to          ANOTHER REASON NOT TO ANSWER
audit for personal gain, falsifying or               THE PHONE AT THE DINNER HOUR
destroying documents, retaliation or
harassment, and assault and battery.
                                             In its budget request of the fiscal year starting October 1st, the
Remedies in the other cases involved
                                             Bush administration asked Congress to permit it to use private col-
penalties and employees leaving the IRS.
                                             lection agencies to recoup as much as $13 billion in back taxes.
                                             Overall, President Bush’s budget raises the IRS budget 5.25%.
           BUNNY HOP                         During the 1990s, the IRS saw personnel levels decline and felt
                                             hamstrung by the 1998 Restructuring Act. One result has been
And you thought the IRS was the only         soaring levels of uncollected taxes. Government-worker unions
government agency with problems.             and their Congressional allies are all but certain to oppose the idea.
The State Department is now saying           Officials said that collection agencies would have only limited
that it does not condone a visit to a        power to collect upon previously ascertained debts. The Bush
Nevada brothel by an East Asian dele-        administration also said it will ask Congress for an additional $133
gation on a State Department spon-           Million to audit higher-income earners and businesses that appear
sored visit. Invited to the United           to be dodging taxes through offshore tax havens, abusive tax shel-
States to study strategies for ending        ters, and other maneuvers. The Treasury Department said it expects
the scourge of sex trafficking, the del-     the number of such audits to jump 72%. The current audit rate for
egation ended up at the Moonlite             high-income individuals is less than 1%.
Bunny Ranch after learning about             _____________________________________________________
Nevada’s legalized prostitution from a
local historian. The owner of the                            TAX SCAMS TARGETING
Ranch reported that to his knowledge
none of the 10 delegation members                           MEDICAL PROFESSIONALS
enjoyed the favors of the Bunny                                  San Diego Doctor Sentenced
Ranch prostitutes. A State Department
spokesmen told the news services that        The IRS has released a fact sheet discussing tax scams and schemes tar-
the Department is now taking steps to        geted at the healthcare profession. During fiscal year 2003, 18 persons in
ensure a closer monitoring of the            the medical community have been convicted as a result of cases investi-
international visitors program.              gated by the IRS and referred to the Department of Justice for prosecu-
                                             tion. The cases vary from failure to file personal income tax returns and
                                             Medicare fraud to money laundering. One case successfully prosecuted
                                             resulted in a 33-month prison sentence to Dr. Rick Shacket of San Diego
                                             for tax fraud conspiracy with his former attorney, Russell D. Ward.
                                             Shacket and Ward created a sham Oregon corporation and created a false
                                             identity for Shacket. Shacket used the corporation and his false identity
                                             to receive and hide from the IRS diverted corporate funds in an amount
                                             exceeding $540,000 from Shacket’s medical practice.
Look back at newsletter issues,
articles I've written, and general
      advice at my website"                                COMPROMISING WITH
                                              IRS CAN TAKE EXTRAORDINARY PATIENCE
                                             The IRS is authorized to compromise with Taxpayers who show
                                             that they cannot pay their taxes. But the IRS’s Taxpayer Advocate
                                            complains that the IRS takes way too long to decide on Taxpayers’
 IRS WARNS OF IDENTITY                      offers. The IRS claims that the average backlog is ten months, but
         AND                                some cases take much longer. Meanwhile the number of applica-
FINANCIAL THEFT SCAMS                       tions is soaring. As of August, the backlog stood at 94,000, up from
                                            62,551 nearly two years earlier. The IRS is responding by adopting
The IRS has issued a warning of a           an "inventory reduction program". My experience with this inven-
fraudulent scheme that uses fictitious      tory reduction program is that the IRS will find some frivolous rea-
bank correspondence and IRS forms           son to dump a case. Pity the poor Taxpayer who does not know
in an effort to mislead taxpayers into      how to respond to irresponsible conduct by IRS employees.
disclosing their personal and banking       _____________________________________________________
data. The information fraudulently
obtained is then used to steal the tax-                   DO TAX AMNESTIES WORK?
payer’s identity and bank account
deposits. In the scam, a letter purport-    More states are trying them, but questions linger. In a typical
edly from the taxpayer’s bank states        amnesty, a state generally offers to waive penalties for those who
that the bank is updating its records in    voluntarily pay off their tax debts. Some states also waive interest.
order to exempt the taxpayer from           Amnesties are popular during recessions as a speedy way to raise
reporting interest or having tax with-      cash without raising taxes. Critics complain that amnesties are
held on interest paid on the taxpayer’s     unfair to honest taxpayers. Once a state adopts a policy of granti-
bank accounts or other financial trans-     ng amnesty with each budget deficit, taxpayers have an incentive
actions. Banks are required to report       to delay payment and wait for the next amnesty. Some states, how-
interest to the IRS and taxpayers must      ever, add the inducement of tougher enforcement after the amnesty
include interest in gross income. The       period.
bank correspondence encloses a              _____________________________________________________
phony form allegedly from the IRS
and seeks detailed personal and finan-                  IRS MISLAID 2300 COMPUTERS
cial data. Recipients are urged to fax
the completed form to a specific num-       Senate Finance Committee ranking member Charles E. Grassley
ber within seven days or lose the           wants to know how much confidential information was stored on
reporting and withholding exemption,        approximately 2300 IRS computers reported as missing. Senator
resulting in withholding of 31% on the      Grassley is also demanding to know the status of 6 firearms, 50
account’s interest. Once the informa-       communication devices, 40 identification badges, and 15 electron-
tion is obtained, the scheme’s promot-      ic surveillance devices reported as missing. Senator Grassley has
ers use the information to impersonate      said that if he is not satisfied with the IRS’s response he may hold
the taxpayer and gain access to the         up IRS nominees or fight any increase in the IRS budget.
taxpayer’s finances.                        _____________________________________________________

                                                       IRS PERMITTED TO TERMINATE
                                                           OFFER IN COMPROMISE
                                            The United States District Court for the State of Missouri has held
                                            that the IRS properly terminated an offer-in-compromise submitted
                                            by the president and majority shareholder of an S corporation when
                                            he incurred a tax liability after the offer-in-compromise was
                                            accepted. The government was authorized to pursue collection
                                            activities against the taxpayer for all of the tax liabilities, penalties,
                                            and interest previously forgiven even if the taxpayer had substan-
                                            tially performed all of the terms and conditions of his agreement.

                                                          IRS VOWS TO CRACKDOWN
     “Can you come back tomorrow?                             ON TAX CHEATING
 He’s doing his community service today.”
                                            While the IRS’s own statistics show a very low audit rate, those
                                            numbers can be misleading. The IRS says that it still maintains an
  A CHEATING EPIDEMIC!                      extensive system for catching tax cheats. For example, the IRS has
                                            a "document-matching" program to cross check what taxpayers
                                            report against separate documents the IRS receives on such items
The General Accounting Office (a con-
                                            as wages, interest, and dividends. One area of systematic noncom-
gressional investigative agency) was        pliance that will attract more IRS scrutiny is the use of abusive
sharply critical of the sharp declines in   trusts to hide income. Estimates of revenue loss from such trusts
IRS audit and collection programs. Larry    run into the tens of billions of dollars. Other problem areas include
R. Levitan, chairman of the IRS             erroneous refund claims, complex corporate tax shelters, tax
Oversight Board, said that there is much    scams, and unpaid employment taxes.
evidence to suggest the IRS is facing an    ____________________________________________________
increase of corporate and individual
behavior that makes going to any lengths            QUESTIONABLE TAX DEDUCTIONS
to not pay taxes acceptable behavior.                    EXCEED $16 BILLION
Taxpayers were asked in a survey what
was an acceptable amount to cheat in        In the broadest depiction yet of abusive tax shelters, the IRS said
paying their taxes. Last year, 76% said     wealthy individuals and large corporation in recent years deducted
                                            more than $16 Billion in improper or dubious tax deductions. The
not at all, which is down from 87% in       IRS gained the information through a special four-month long
1999. What this says is that nearly one-    amnesty program that encouraged taxpayers to come in from the
quarter of taxpayers believe cheating is    cold. In exchange for voluntarily disclosing tax shelters, taxpayers
appropriate behavior. The Government        received immunity from IRS penalties (but not the tax and inter-
could be heading toward a noncompli-        est). Even IRS officials hardened to the realities of the tax shelter
ance train wreck. IRS budget woes com-      industry were taken aback by the size and scope of the disclosures
pound the problem. The IRS Oversight        received. The total of all the tax shelter writeoffs disclosed is like-
Board is very concerned that without        ly much higher than $16 Billion because many taxpayers did not
additional meaningful resources, enforce-   list the amounts of their deductions. Those participating in the
                                            amnesty program were taking deductions of $10 Million to $300
ment levels will continue to deteriorate.
                                            Million. The disclosures are likely to boost momentum for tax-
                                            shelter legislation to beef up the government’s ability to prosecute
                                            shelters that are promoted by major accounting firms and invest-
                                            ment banks and assisted by major law firms.

                                             Scott Kauffman, A Professional Law Corp.             PRESORTED STD
                                             18881 Von Karman Ave., Suite 1225                     U.S. POSTAGE
                                             Irvine, California 92612                              Santa Ana, CA
                                                                                                    Permit No. 3

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